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Looking for some pointers or expert advice. Not sure if this fits into the tax or legal tribe so apologies if I am at the wrong place!
Situation: My daughter has a residential mortgage and a BTL both in joint names with her husband. I plan to pay off the BTL and move into that property. I don't see a point in purchasing it from them as they will have to pay CGT and there has been a substantial increase in its value since they bought it. It will be a mortgage free flat and I wont be paying any rent to my daughter however will pay council tax, service charge and ground rent as its a leasehold flat.
Question: What are the implications of moving into a property owned by my daughter and son in law and living there for the foreseeable future? Will they be liable for any sort of tax?
If you move into the second property then your Daughter and Son in Law will still be liable for any future Capital Gains when the property is sold, there will not be any relief under such reliefs as Main Residence Relief.
When you pay off the Mortgage for your Daughter and Son In Law that will be a Potentially Exempt Transfer for IHT purposes and you will then need to survive 7 years. However since you will be living in the property you will be retaining the benefit of the money you used to pay off their Mortgage so it could fall under POAT (Pre Owned Asset Tax) so it would be wise to get advice to make sure that you pay sufficient of the costs related to the property and maintain evidence of those payments to avoid being caught by POAT.
Nigel Reynolds FCCA CMgr FCMI
Property Tax Specialist
Reynolds and Co
Thank you Nigel, POAT does look complicated!
You are very welcome. I once attended a tax conference at which a Barrister referred to POAT as Machiavellian in its complexity and unfortunately many people overlook this area of taxation.
There are two issues with your suggestion the first is that at £7.5K it would take 10 years to clear £75k of mortgage so depending on the level of mortgage may mena it would take too long. Secondly HMRC are getting better at spotting circular transactions and since this would go on for several years there would be a longer trail for them to spot.
Whilst POAT is an issue it is possible to avoid it by showing that having made a gift from which you are benefiting that you ae the paying all of the costs associated with the property. This simply needs some clear advice and making sure you have evidence to support the claim.
Another thought - Can myself and my wife get onto the title deeds after repaying the mortgage off? That way my daughter and her husband would jointly own the flat with me and my wife.
What are the implications of doing so? No CGT I would imagine...
Is it even possible? 25% share each?
Without knowing the numbers involved it is impossible to answer this question. However such a change of ownership would generally give rise to both a Capital Gains Tax cost (to your daughter and her husband) plus possibly a SDLT tax cost as well, although the SDLT position may be mitigated if the circumstances are correct.
Purchase price - £265,000
Current value - £425,000 (as per valuation by the bank 18 months ago)